Microsoft Surface RT's Weak Sales: Ballmer's Take

By Pedro Hernandez |
Posted 2013-07-29

Analysts aren't the only ones underwhelmed by Surface RT's impact on the tablet market. As the clock ticks to the device's first anniversary, Microsoft CEO Steve Ballmer seems to have come to terms with the tablet's lackluster sales.

The Vergereported July 26 that during an internal town hall meeting, Ballmer addressed slack Surface RT demand by saying, "We built a few more devices than we could sell."

As part of its quarterly financial disclosures, Microsoft announced July 18 that the company had taken a $900 million write-off due to the Surface RT tablet during the fourth quarter of its fiscal year (2013). The company also slashed the struggling tablet's prices.

"We reduced the price of Surface RT by $150, to $349 per device. As a result of this price change, as well as inventory adjustments for related parts and accessories, we recorded a $900 million charge to our income statement," Microsoft Chief Financial Officer Amy Hood said during the earnings call.

Surface RT is Microsoft's ARM-powered tablet, which runs a variant of the company's Windows 8 operating system, dubbed Windows RT. Despite its premium build quality, responsive hardware and a price point that is competitive with Apple's market-leading iPad, Surface RT failed to gain much traction after an initial surge of demand.

In a Jan. 14, Business Insider reported that Microsoft sold only 1 million Surface RT tablets during the fourth quarter of 2012. The software maker had hoped to sell at least 2 million units. By March, the situation was little improved. Microsoft only managed to sell just over a million Surface RTs, well below expectations, stated a report in Bloomberg.

Apple, by comparison, sold approximately 1.7 million iPads per week during the fourth quarter of 2012—the quarter the Surface RT launched—for a total of 22.9 million units during the period.

Part of the reason Surface RT failed to catch on, said IDC Research Director Tom Mainelli, was the tablet's departure from Windows' x86 roots. Unlike Surface Pro, which is powered by an Intel Core i5 processor, Surface RT cannot run traditional x86 Windows software.

"Microsoft's decision to push two different tablet operating systems, Windows 8 and Windows RT, has yielded poor results in the market so far. Consumers aren't buying Windows RT's value proposition, and long term, we think Microsoft and its partners would be better served by focusing their attention on improving Windows 8," said Mainelli in a statement.

Ballmer also revealed that the entire Windows device ecosystem—PCs, tablets and phones—is underperforming. "We're not selling as many Windows devices as we want to," he said.

The company is betting on the upcoming Windows 8.1 update to help turn things around. Windows 8.1, currently in preview, will include several enhancements, including updates to native apps, a restored Start button, a boot-to-desktop option and Internet Explorer 11.